Willis Towers Watson

2019 Fourth Quarter And Full Year Financial Results Supplemental Materials

February 6, 2020

© 2020 Willis Towers Watson. All rights reserved.

Willis Towers Watson Forward Looking Statements

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as "may", "will", "would", "expect", "anticipate", "believe", "estimate", "plan", "intend", "continue", or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, such things as our outlook, future capital expenditures, ongoing working capital efforts, future share repurchases, growth in revenue, the impact of changes to tax laws on our financial results, business strategies and planned acquisitions (including the acquisition of TRANZACT and our proposed acquisition of Unity Group), demand for our services and competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, our ability to successfully manage ongoing organizational and technology changes, including investments in improving systems and processes, our ability to meet financial guidance, and plans and references to future successes, including our future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Willis Towers Watson's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.

There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained herein, including the following: the ability of the company to successfully establish, execute and achieve its global business strategy as it evolves; changes in demand for our services, including any decline in consulting services, defined benefit pension plans or the purchasing of insurance; changes in general economic, business and political conditions, including changes in the financial markets; significant competition that the company faces and the potential for loss of market share and/or profitability; the impact of seasonality and differences in timing of renewals; failure to protect client data or breaches of information systems or insufficient safeguards against cybersecurity breaches or incidents; the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation; the risk the Stanford litigation settlement approval will be overturned on appeal, the risk that the Stanford bar order may be challenged in other jurisdictions, and the risk that the charge related to the Stanford settlement may not be deductible; the risk of material adverse outcomes on existing litigation or investigation matters; changes in the regulatory environment in which the company operates, including, among other risks, the impact of pending competition law and regulatory investigations; various claims, government inquiries or investigations or the potential for regulatory action; the company's ability to make divestitures or acquisitions and its ability to integrate or manage such acquired businesses (including the recently completed acquisition of TRANZACT and our proposed acquisition of Unity Group); our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions; the ability to comply with complex and evolving regulations related to data privacy and cyber security; the ability to successfully manage ongoing organizational changes, including investments in improving systems and processes; disasters or business continuity problems; the potential impact of Brexit; our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow; the potential impact of the change in the method for determining LIBOR; the ability of the company to properly identify and manage conflicts of interest; reputational damage, including from association with third parties; reliance on third-party services; the loss of key employees; doing business internationally, including the impact of exchange rates; compliance with extensive government regulation; the risk of sanctions imposed by governments, or changes to associated sanction regulations; our ability to effectively apply technology, data and analytics changes for internal operations, maintaining industry standards and meeting client preferences; changes and developments in the insurance industry or the United States healthcare system, including those related to Medicare; the risk that the company may not be able to repurchase the intended number of outstanding shares due to M&A activity or investment opportunities, market or business conditions, or other factors; the inability to protect the company's intellectual property rights, or the potential infringement upon the intellectual property rights of others; fluctuations in the company's pension liabilities; the ability of the company to meet its financial guidance, the company's capital structure, including indebtedness amounts, the limitations imposed by the covenants in the documents governing such indebtedness and the maintenance of the financial and disclosure controls and procedures of each; the ability of the company to obtain financing on favorable terms or at all; adverse changes in the credit ratings of the company; the impact of recent changes to U.S. tax laws, including on our effective tax rate, and the enactment of additional, or the revision of existing, state, federal, and/or foreign regulatory and tax laws and regulations; U.S. federal income tax consequences to U.S. persons owning at least 10% of the company's shares; changes in accounting principles, estimates or assumptions; fluctuation in revenue against the company's relatively fixed or higher than expected expenses; the laws of Ireland being different from the laws of the United States and potentially affording less protections to the holders of our securities; and the company's holding company structure potentially preventing it from being able to receive dividends or other distributions in needed amounts from our subsidiaries. These factors also include those described under "Risk Factors" in the company's most recent 10-K filing and subsequent filings filed with the SEC.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.

Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against relying on these forward-looking statements.

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© 2020 Willis Towers Watson. All rights reserved.

Willis Towers Watson Non-GAAP Measures

In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson's management uses to evaluate the business and for financial planning, we present the following non-GAAP measures: (1) Constant Currency Change, (2) Organic Change, (3) Adjusted Operating Income/Margin, (4) Adjusted EBITDA/Margin, (5) Adjusted Net Income, (6) Adjusted Diluted Earnings Per Share, (7) Adjusted Income Before Taxes, (8) Adjusted Income Taxes/Tax Rate and (9) Free Cash Flow.

The Company believes that these measures are relevant and provide useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.

Reconciliations of these measures are included in the accompanying appendix of these earning release supplemental materials.

The Company does not reconcile its forward looking non-GAAP financial measures to the corresponding U.S. GAAP measures, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward-lookingnon-GAAP financial measures to the most directly comparable U.S. GAAP financial measure, is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non-GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non-GAAP measures.

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© 2020 Willis Towers Watson. All rights reserved.

Q4 2019 & Full Year 2019 GAAP Financial Results

Key Figures

USD million, except EPS, %, and bps

Three months ended December 31,

Years ended December 31,

2018

2019

2018

2019

Revenue

$2,372

$2,690

$8,513

$9,039

as reported % change

+13%

+6%

Income from Operations

$470

$687

$809

$1,329

as reported % change

+46%

+64%

Operating Margin %

19.8%

25.5%

9.5%

14.7%

as reported change, basis points

+570 bps

+520 bps

Net Income attributable to Willis Towers Watson

$378

$544

$695

$1,044

as reported % change

+44%

+50%

Diluted EPS

$2.89

$4.18

$5.27

$8.02

as reported % change

+45%

+52%

Operating Cash Flow

$1,288

$1,081

as reported % change

-16%

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© 2020 Willis Towers Watson. All rights reserved.

Q4 2019 & Full Year 2019 Financial Results, including Non-GAAP Measures

Willis Towers Watson reports strong full year and fourth quarter 2019 earnings

Total Revenue

$9.0B

Strong Growth Momentum

Adj. Diluted EPS

Delivered 6% organic revenue growth for the third

Double-Digit Growth

consecutive quarter driven by robust new business

FY2019 Full Year Revenue

generation and strong client retention

Despite Headwinds

$10.96 Delivered 13% of adjusted

Providing a client winning experience in more than

450 markets in over 140 countries to fuel our

FY2019 Full Year Adj. Diluted EPS growth for the year

continued growth

EPS*

despite headwinds from less

pension income and foreign

+5%

+6%

currencies for the year

FY2019

Q4 2019

+13%

$4.90

Organic %

Organic %

FY2019

Q4 2019

Adj. Operating Margin

Growth %

20.3%

Sustained Margin

Free Cash Flow

Expansion

$835M

Positive Cash Generation

Strong organic growth coupled

FY2019 Full Year

with operational efficiency gains

The decline in free cash flow is driven by

Adj. Operating Margin*

and prudent expense

deterioration in working capital and additional cash

management are driving margin

FY2019 Full Year Free Cash

tax payments

expansion across all segments

Flow*

We are focused on delivering free cash flow growth

Delivered on adjusted operating

over the long term with a combination of profitable

margin guidance of around 20%

growth and working capital improvement

+220bps

30.1%

-18%

FY2019

Q4 2019

FY2019

Margin growth

Growth %

  • Signifies Non-GAAP financial measures. See appendix for Non-GAAP reconciliations.

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© 2020 Willis Towers Watson. All rights reserved.

Strong Organic Growth Momentum Across All Segments

Our commitment to a client winning experience is foundational to our growth momentum

Organic Revenue Growth %*

Q4 2018

Q4 2019

Human Capital &

4%

4%

Benefits

Corporate Risk &

5%

9%

Broking

Investment, Risk &

8%

12%

Reinsurance

Benefits Delivery &

8%

3%

Administration

FY2018 FY2019

3% 4%

4% 6%

6% 7%

9% 4%

HCB organic revenue growth was led by Health and Benefits due to increased consulting and brokerage services, growth in specialty products, and new local and global appointments. Retirement growth was driven by increased pension de-risking activities. Talent and Rewards also had solid growth due to strong demand for advisory services.

CRB delivered strong organic revenue growth across all geographies driven by robust new business generation and strong client retention. North America and International continued to lead the segment in organic growth.

IRR had strong organic revenue growth across all core businesses. Reinsurance's and Wholesale's growth was driven by net new business and favorable renewal factors. ICT and Investment also had strong growth due to increased demand for technology and new wins in the delegated investment business.

BDA continued to show solid organic growth led by its expanded client base and client demand for project work in the mid-market and large-market

Willis Towers Watson

6%

6%

5%

5%

spaces. TRANZACT is not included in the organic revenue growth results as presented.

  • Organic revenue growth for 2018 excludes the impact of ASC 606. Organic revenue growth for 2019 compared to 2018 includes the adoption of ASC 606 for both years.
  • For HCB, the 2018 result reflects the impact of adopting the new revenue standard (ASC 606), which resulted in certain revenue being not recognized that was recognized in 2019.

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© 2020 Willis Towers Watson. All rights reserved.

Summary of Segment Financial Results

Q4 2019 and Full Year 2019 segment results

As reported, USD million, except % and bps

Q4 20191,2

FY20191,2

Revenue

Operating

Revenue

Operating

Margin

Margin %

Margin %

Year-over-year

Human Capital & Benefits

$865

30%

$3,298

26%

+130 bps

Corporate Risk & Broking

$877

30%

$2,946

20%

+110 bps

Investment, Risk & Reinsurance

$314

9%

$1,637

26%

+100 bps

Benefits Delivery & Administration

$595

52%

$1,035

24%

+470 bps

1 Revenue and Operating Margin with the adoption of ASC 606 accounting standards for both 2018 and 2019. The Operating Margin percentage is rounded. 2 Includes TRANZACT revenue after July 30, 2019 closing.

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© 2020 Willis Towers Watson. All rights reserved.

Maintaining a Strong and Flexible Balance Sheet Position

Significant financial flexibility to support long-term shareholder value

USD million, except ratio

Cash and Cash

Equivalents

Total Debt1

Total Equity

Debt to Adj. EBITDA2

Trailing twelve months basis

Dec 31, 2018

Sep 30, 2019

Dec 31, 2019

$1,033

$867

$887

$4,575

$5,865

$5,617

$9,971

$10,001

$10,344

2.3x

2.7x

2.4x

A disciplined capital management strategy provides Willis Towers

Watson with ample financial

flexibility to reinvest in our businesses, capitalize on market growth opportunities, and support significant value for shareholders

Our capital structure, enabled by a strong balance sheet and positive cash generation, provides a solid foundation for significant shareholder value creation over the long-term

History of effectively managing our leverage with the commitment to maintain investment grade credit rating

On the path towards reducing outstanding debt with the near- term focus on returning our leverage profile to historical level

1 Total Debt equals sum of current debt and long-term debt as shown on the Consolidated Balance Sheets. 2 Signifies Non-GAAP financial measure. See appendix for Non-GAAP reconciliations.

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© 2020 Willis Towers Watson. All rights reserved.

A Capital Strategy Fit For Creating Long-Term Shareholder Value

Disciplined approach to capital allocation

A capital light business model and capital structure allow us to shift capital between growth and value creation based on changes in the businesses and/or the macro environment

A strong focus on return on investment to optimize the use of cash

A disciplined approach to managing our pipeline of investment opportunities. Matching capital with opportunities that yields the best results for our clients, colleagues, and shareholders

Focus areas to prioritize use of cash

  1. Reinvest in our capabilities, businesses, and processes
  2. Invest in innovation, technology, and new business opportunities
  3. Pursue opportunistic mergers, acquisitions, and divestitures
  4. Strengthen balance sheet and liquidity
  5. Return excess cash to shareholders through share repurchase
  6. Sustain dividends and payout ratio

CASH RETURNED TO SHAREHOLDERS

$3.0B

$986

$908

FY2016 to FY2019

$595

$709

$602

$479

Share repurchases

million

$396

$150

$329

$306

$277

$199

Dividends

$

2016

2017

2018

2019

MEANINGFUL DIVIDEND GROWTH

+11%

$0.60

$0.65

Cash dividend growth

$0.48

$0.53

3 years CAGR

+11%

Quarterly cash dividend

per share

2016

2017

2018

2019

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© 2020 Willis Towers Watson. All rights reserved.

A Solid Foundation for 2020

Full year 2020 management guidance and expectations

FY2020

Revenue Growth

FY2020 Adjusted

Operating Margin

FY2020

Adjusted Diluted EPS

FY2020

Free Cash Flow

FY2020 Foreign

Currency Assumptions

6% to 7% constant currency growth

4% to 5% organic revenue growth

around 20.5% adj. operating margin

$11.80 to $12.10 adj. diluted EPS

around $1 billion free cash flow

includes Stanford settlement*

around $0.10 adj. EPS of currency headwind

Assumes average rates £1.00 = $1.31, €1.00 = $1.11

  • Assumes the Stanford settlement will no longer be subject to further appeal and we will make the approximately $120 million payment in 2020

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Appendix: Reconciliation of Non-

GAAP Measures

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Appendix 1: Constant currency and organic revenue change

As reported, USD millions, except %

Components of Revenue Change(i)

Three Months Ended December 31,

As Reported

Currency

Constant Currency

Acquisitions/

Organic

2019

2018

% Change

Impact

Change

Divestitures

Change

Human Capital & Benefits

$

865

$

843

3%

(1)%

4%

0%

4%

Corporate Risk & Broking

877

816

7%

(2)%

9%

0%

9%

Investment, Risk & Reinsurance

314

280

12%

(1)%

14%

2%

12%

Benefits Delivery & Administration

595

390

53%

0%

53%

50%

3%

Segment Revenue

2,651

2,329

14%

(1)%

15%

9%

6%

Reimbursable expenses and other

39

43

Revenue

$

2,690

$

2,372

13%

(1)%

14%

8%

6%

Components of Revenue Change(i)

Years Ended December 31,

As Reported

Currency

Constant Currency

Acquisitions/

Organic

2019

2018

% Change

Impact

Change

Divestitures

Change

Human Capital & Benefits

$

3,298

$

3,233

2%

(2)%

4%

0%

4%

Corporate Risk & Broking

2,946

2,852

3%

(3)%

6%

0%

6%

Investment, Risk & Reinsurance

1,637

1,556

5%

(3)%

8%

1%

7%

Benefits Delivery & Administration

1,035

758

37%

0%

37%

32%

4%

Segment Revenue

8,916

8,399

6%

(2)%

9%

3%

5%

Reimbursable expenses and other

123

114

Revenue

$

9,039

$

8,513

6%

(2)%

9%

3%

5%

  1. Components of revenue change may not add due to rounding

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Appendix 2: Adjusted operating income and margin, adjusted EBITDA and margin, free cash flow

As reported, USD millions, except %

Three Months Ended December 31,

2019

2018

Years Ended December 31,

2019

2018

Income from operations

$

687

25.5%

$

470

19.8%

Cash flows from operating activities

$

1,081

$

1,288

Adjusted for certain items:

Less: Additions to fixed assets and software for internal use

(246)

(268)

Amortization

121

126

Free cash flow

$

835

$

1,020

Transaction and integration expenses

1

54

Adjusted operating income and adjusted operating income margin

$

809

30.1%

$

650

27.4%

Years Ended December 31,

2019

2018

Income from operations

$

1,329

14.7%

$

809

9.5%

Adjusted for certain items:

Amortization

489

534

Transaction and integration expenses

13

202

Adjusted operating income and adjusted operating income margin

$

1,831

20.3%

$

1,545

18.1%

Three Months Ended December 31,

2019

2018

Net income

$

551

20.5%

$

383

16.1%

Provision for income taxes

124

94

Interest expense

62

54

Depreciation

69

55

Amortization

121

126

Transaction and integration expenses

1

54

Pension settlement and curtailment gains and losses

-

8

Loss on disposal of operations

2

-

Adjusted EBITDA and adjusted EBITDA margin

$

930

34.6%

$

774

32.6%

Years Ended December 31,

2019

2018

Net income

$

1,073

11.9%

$

715

8.4%

Provision for income taxes

249

136

Interest expense

234

208

Depreciation

240

208

Amortization

489

534

Transaction and integration expenses

13

202

Pension settlement and curtailment gains and losses

-

24

Loss on disposal of operations

2

9

Adjusted EBITDA and adjusted EBITDA margin

$

2,300

25.4%

$

2,036

23.9%

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Appendix 3: Adjusted net income, adjusted diluted earnings per share, adjusted income before taxes, adjusted income tax rate

As reported, USD millions, except %

Three Months Ended December 31,

2019

2018

Three Months Ended December 31,

2019

2018

Net income attributable to Willis Towers Watson

$

544

$

378

Income from operations before income taxes

$

675

$

477

Adjusted for certain items:

Amortization

121

126

Adjusted for certain items:

Transaction and integration expenses

1

54

Amortization

121

126

Pension settlement and curtailment gains and losses

-

8

Transaction and integration expenses

1

54

Loss on disposal of operations

2

-

Pension settlement and curtailment gains and losses

-

8

Tax effect on certain items listed above(i)

(31)

(45)

Loss on disposal of operations

2

-

Tax effects of internal reorganization

-

3

Adjusted income before taxes

$

799

$

665

Adjusted net income

$

637

$

524

Provision for income taxes

$

124

$

94

Weighted-average shares of common stock - diluted

130

131

Tax effect on certain items listed above(i)

31

45

Tax effects of internal reorganization

-

(3)

Diluted earnings per share

$

4.18

$

2.89

Adjusted income taxes

$

155

$

136

Adjusted for certain items:(ii)

Amortization

0.93

0.96

U.S. GAAP tax rate

18.3%

19.7%

Transaction and integration expenses

0.01

0.41

Adjusted income tax rate

19.4%

20.4%

Pension settlement and curtailment gains and losses

-

0.06

Loss on disposal of operations

0.02

-

Tax effect on certain items listed above(i)

(0.24)

(0.34)

Tax effects of internal reorganization

-

0.02

Adjusted diluted earnings per share

$

4.90

$

4.00

Years Ended December 31,

Years Ended December 31,

2019

2018

2019

2018

Net income attributable to Willis Towers Watson

$

1,044

$

695

Income from operations before income taxes

$

1,322

$

851

Adjusted for certain items:

Amortization

489

534

Adjusted for certain items:

Transaction and integration expenses

13

202

Amortization

489

534

Pension settlement and curtailment gains and losses

-

24

Transaction and integration expenses

13

202

Loss on disposal of operations

2

9

Pension settlement and curtailment gains and losses

-

24

Tax effect on certain items listed above(i)

(121)

(184)

Loss on disposal of operations

2

9

Tax effects of internal reorganization

-

4

Adjusted income before taxes

$

1,826

$

1,620

Adjusted net income

$

1,427

$

1,284

Provision for income taxes

$

249

$

136

Weighted-average shares of common stock - diluted

130

132

Tax effect on certain items listed above(i)

121

184

Tax effects of internal reorganization

-

(4)

Diluted earnings per share

$

8.02

$

5.27

Adjusted income taxes

$

370

$

316

Adjusted for certain items:(ii)

Amortization

3.75

4.04

U.S. GAAP tax rate

18.8%

16.0%

Transaction and integration expenses

0.10

1.53

Adjusted income tax rate

20.3%

19.5%

Pension settlement and curtailment gains and losses

-

0.18

Loss on disposal of operations

0.02

0.07

Tax effect on certain items listed above(i)

(0.93)

(1.39)

Tax effects of internal reorganization

-

0.03

Adjusted diluted earnings per share

$

10.96

$

9.73

  1. The tax effect was calculated using an effective tax rate for each item.
  2. Per share values and totals may differ due to rounding.

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About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has more than 45,000 employees and services clients in more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas - the dynamic formula that drives business performance. Together, we unlock potential. Learn more

at willistowerswatson.com.

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Willis Towers Watson plc published this content on 06 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 February 2020 11:57:03 UTC